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The great debate

A once favourite topic of conversation at dinner parties is now a more painful subject: what’s happening in the UK housing market and will it make you choke on your prawn cocktail?

Property prices and the weather are still great British pastimes. However, whilst back in the 80s, when dinner-party talk turned to property prices it was quite often buffed by the glow of self-satisfaction. How much equity was in a recently purchased home was a source of much comfort. Now however, those same people are likely discussing house prices as they decide how much they can lend their children to get them out of the house and on to the property ladder.

Recent comments from the Bank of England that a rate increase is increasingly likely, as a result of inflation’s upward march, won’t help much either. Overall the general consensus is that house prices are slowing, although a recent survey by the Halifax trumpets a 1.1% rise in August but it does admit a slight drop year on year. And it has to be noted that any buoyancy left in the market is less to do with buyer demand and more about other factors such as lack of supply, and historically low mortgage rates.

Affordability is still the main issue though with households increasingly feeling the pinch, so saving for a deposit and all the associated costs with buying a house is harder, not to mention falling foul of the stringent checks now imposed by lenders.

A recent survey of estate agents, carried out by the Royal Institute of Chartered Surveyors (RICS) revealed that agents had observed a fall in house prices in August and expected a further fall over the coming 12 months, particularly areas where affordability has been most stretched such as London. And this is reflected in the fact that of all UK regions, the capital showed the greatest slow down.

Sentiment is more positive across the rest of the UK, although the wider South East, the North and East Anglia were expected to be ‘moderately negative’.

And a UK economist at Pantheon Macroeconomics has said: ‘the pick up in house price growth should not be mistaken for underlying momentum’. Whilst the immediate impact of the Brexit vote might have been overestimated, now that negotiations are real the longer-term impact could have been underestimated. Add to that the real wage squeeze and weaker consumer confidence, not to mention that very real possibility of a rate increase, then the outlook for demand is likely to continue to slide over the next few months.